The dream of owning a home is alive and well, but getting here is easier said than done. Even if you get a job and work hard to build a strong credit score, a down payment remains one of the biggest hurdles to homeownership as a first-time homebuyer. But you can overcome this hurdle. This starts with understanding how much down payment for a house a first-time buyer needs.

If you’re fortunate enough to qualify for zero down programs like a VA or a USDA home loan, a down payment is one headache you don’t have to worry about. But if you don’t qualify for these programs, you’ll need to drum up this cash and look for mortgage programs that allow the least amount out-of-pocket.

First-Time Homebuyer

Down payments can take a chunk out of anyone’s bank account. But coming up with this type of cash is especially challenging as a first-time homebuyer.

Whereas someone who’s already a homeowner can use proceeds from the sale of their current home as down payment on their next place, you don’t have profits from a home sale to fall back on. Therefore, every penny you give the bank toward the purchase of a home comes from years of savings. And if you’re just starting your down payment fund, saving up enough for a home purchase can seem insurmountable.

Fortunately, several low down mortgages are available to first-time homebuyers and repeat buyers alike. Some programs are also tailored specifically to first-time homebuyers, allowing them to get their foot in the door with even less money. And with many of these programs, a person who hasn’t owned in the past three years is considered a first-time homebuyer. So if you owned a home years ago, but you’ve spent the past three years renting, you may still qualify for these special programs.

Average Down Payment on a House for First-Time Buyer

If you think you’ll never have enough saved for a home purchase, think again. Some people are under the impression that buying a home still requires 20% down. But the truth is, 20% down payments are becoming less and less common.

Nowadays, the average down payment on a house is far less, ranging between 3.5% and 5% depending on whether you get an FHA home loan or a conventional home loan, respectively.

A low down payment can be difference between buying a home now and buying a home several years in the future. With a 20% down payment, you would need to save $40,000 for a $200,000 house. But with a 5% down payment, you can purchase the same house with only $10,000 down— a big difference.

But while FHA and conventional home loans are popular low down mortgage products, some programs allow first-time homebuyers to purchase with less—as low as 3% down. These included programs such as HomeReady and Conventional 97.

As previously mentioned, you can qualify for the above programs if you’ve never owned, or if you haven’t owned in at least three years. Keep in mind, some first-time homebuyer programs have income restrictions and are only available to those with low to moderate incomes.  In addition, many programs designed for first-time homebuyers require borrowers to complete a homebuyer education course either online or in a classroom setting.

Even though the average down payment on a house is under 5%, only people with acceptable credit scores can purchase with a small down payment.

You’re not likely to get a conventional mortgage with a score under 620. But it is possible to qualify for an FHA home loan with a credit score as low as 500. Just know that if your score is between 500 and 579, you’ll need a minimum down payment of 10% (instead of 3.5%)

More on How to get a loan for a house

House Down Payment Calculator

When you’re pre-approved for a mortgage loan, the lender will discuss how much cash you’ll need for a down payment.

Before you even get to this point, however, use an online down payment calculator to get an idea of how much money to save for a home purchase.

Typically, you won’t meet with a mortgage lender until you’re actually ready to move forward with a home purchase. However, you should prepare for this purchase well in advance, perhaps one or two years in advance. This is the benefit of using a down payment calculator.

These calculators can tell you the minimum amount you’ll need for a down payment based on the mortgage program and purchase price. Even if you haven’t found a house yet, you probably have an idea of how much you’ll spend on a property. And if you have a rough idea of how much you’ll need for a down payment, you can plan accordingly and come up with a realistic savings strategy to hit a specific savings goal.

Down payment calculators can also estimate other figures too, such as your monthly payment based on a purchase price, down payment, interest rate, and mortgage term.

Keep in mind, payment calculators only calculate repayment of principal and interest, and many doesn’t factor in other monthly costs like homeowner’s insurance, property taxes or homeowner’s association fees.

Use Gift Funds for Your Down Payment

Since saving money for a down payment is particularly challenging for first-time homebuyer‘s, you might look into other options, such as using gift funds for your down payment.

The good news is that many mortgage lenders allow borrowers to use gift funds from a relative towards their down payment and/or closing costs. The bad news is that there are specific rules with regard to gift funds, and lenders will only accept these funds under certain circumstances.

For example, the donor providing the gift must submit a gift lender to your mortgage lender. This letter must include their name, their address, the amount of the gift and a statement verifying that funds are indeed a gift, and not a loan. This statement is important because many mortgage lenders won’t allow you to borrow funds for your down payment.

Sometimes, mortgage lenders will also request a donor’s bank statements to verify the source of funds. And some lenders only allow gifts from a blood relative, whereas others may allow gifts from a godparent or close friend. The rules vary, so speak with your lender for specific guidelines.

Also, depending on your type of mortgage loan, you may have to contribute some of your own cash, too. For example, an FHA home loan still requires you to contribute a minimum cash investment of 3.5% from your own funds—even if you’re using gift funds.

In the case of a conventional home loan, all of your down payment can be a gift if you put down at least 20%. If you put down less than 20%, your lender will only allow a percentage of your down payment to come from a gift. You’ll also have to make a minimum contribution from your own funds. Your mortgage lender will determine this amount.

The Takeaway

Nobody ever said that saving up for a house would be easy. But even if it takes years to drum up the cash or you hit obstacles along the way, never give up on the dream of getting the key to your own house.

Between low down payment mortgages and programs designed specifically for first-time homebuyers, homeownership is closer than you think.